Stories About Commercial Lenders & Borrowers Who’ve Done Wrong

A federal grand jury indicted Alejandro Enrique Mayendía-Blanco, Nell N. Blanco-Casanovas (mother of Alejandro) and Orlando Mayendía-Díaz (father of Alejandro) for providing false information on loan applications. The announcement was made by Rosa Emilia Rodríguez-Vélez, United States Attorney for the District of Puerto Rico. The case is being investigated by Immigration and Customs Enforcement and Homeland Security Investigations (ICE HSI). All the defendants were arrested after the indictment was issued.

Bank records show that Alejandro Mayendia-Blonco refunded mortgage payments made by his parents either on the same day or the following day. He used the seller’s proceeds obtained from the bank for this purpose; then his parents defaulted on the loans.

The defendants mentioned above and others made material false statements to First Equity Mortgage Bankers, Inc. (FEMBI) on or about May 24, 2007. The false statements were made on a loan application seeking a mortgage loan of $1,320,000.00. The loan was subsequently assigned, sold, and transferred to First Bank of Puerto Rico, which is an FDIC institution.

According to the HUD Settlement Statement Form, the borrower (Nell N. Blanco-Casanovas) paid 314,267.27 as cash from borrower. The truth was that the seller (Alejandro E. Mayendía-Blanco) had refunded money to the borrower on or about May 25, 2007 using the funds obtained as the seller’s proceeds and had thus made the loan proceeds the true source of the funds.

The indictment further alleges in counts two and three that Mayendía-Blanco and his father Mayendía-Díaz made false statements in two other loan applications in the amount of $140,000 and $148,000.

If proven guilty, the defendants are facing a maximum punishment of 30 years in prison.

Amedeo Gaglioti, 60, was sentenced to 12 months in prison for his role in a large-scale mortgage fraud scheme. He made obtained more than $1 million in illegitimate proceeds, U.S. Attorney Paul J. Fishman announced.

Gaglioti had previously pleaded guilty in the case before U.S. District Judge Susan D. Wigenton to an the charges that accused him with wire fraud affecting a financial institution as well as money laundering. The sentence was imposed on June 4 by Wigenton in Newark federal court.

Gaglioti swindled mortgage lenders by causing fake “short sale” and fraudulently obtaining mortgage loans on properties primarily located in northern New Jersey from December 2007 through August 2010, according to the court documents. He was also also the closing attorney for these transactions.

For the purpose of short sale flip transactions, Gaglioti created two sets of HUD-1s and other false and misleading closing documents. Lenders would then accept the proceeds of purported short sales in full satisfaction of an existing mortgage. Lenders also funded mortgages that were based on false and misleading information and documents as a result of Gaglioti’s activities. Gaglioti received more than $1 million in illegitimate proceeds through the scheme.

Gaglioti was also sentenced to three years of supervised release and Wigenton ordered him to pay $2,001,245.89 in restitution and entered a forfeiture judgment of $1 million.

Fishman praised the law enforcement agents of the FBI and other agencies involved in the investigation for their work.

Assistant U.S. Attorneys Lakshmi Srinivasan Herman and Andrew Kogan of the U.S. Attorney’s Office Economic Crimes Unit in Newark, as well as Barbara Ward, Acting Chief of the office’s Asset Forfeiture and Money Laundering Unit.

U.S. District Judge Alvin W. Thompson sentenced Ann Hils, 55, of East Hampton, to 63 months of imprisonment. The prison term will be followed by five years of supervised release. She was sentenced in a case related to a real estate appraisal scheme she operated. United States Attorney for the District of Connecticut, Deirdre M. Daly made the announcement.

Hils was never a provisional or certified real estate appraiser in the state of Connecticut according to the court documents. Hils and her daughter Brandy Gomez conspired to obtain over $47,000 in real estate appraisal fees from December 2006 to March 2008. The mother-daughter duo was not entitled to such appraisal fees. Brandy Gomez was a provisional appraiser. Hils and Gomez submitted false work logs to the Connecticut Department of Consumer Protection which showed that dozens of real estate appraisals were completed by Gomez under the supervision of a certified appraiser. Gomez had in fact, never performed such work.

Hils fraudulently prepared dozens of real estate appraisers which helped obtain fraudulent mortgages for straw borrowers. Individual names, business names, certified appraiser license numbers and even in some cases, signatures, of at least three certified appraisers were used without their authorization. Co-conspirators in the case who received the fraudulent appraisals from Hils would then use the appraisals to obtain fraudulent mortgages for straw borrowers. The fraudulent appraisal reports prepared by Hils resulted in over $2.5 million in actual or intended losses to various mortgage lenders.

Hils was asked to pay $47,908 in restitution. Hils pleaded guilty to one count of conspiracy to commit mail and bank fraud on August 22, 2014. Gomez also pleaded guilty to the same charges on May 5, 2015. Gomez was sentenced to one day of imprisonment and five years of supervised release. Gomez was also ordered to pay $47,908 in restitution.

The Federal Bureau of Investigation, U.S. Postal Inspection Service, and U.S. Department of Housing and Urban Development – Office of Inspector General, Internal Revenue Service – Criminal Investigation Division investigated the case. Assistant U.S. Attorney David T. Huang was the prosecutor in the case.

Christopher Paul George, 45, Crystal Taiwana Buck, 40, and Albert DiRoberto, 62, all three of California have been convicted for their roles in a mortgage modification scam that deceived victims out of more than $7 million. There were all associated with 21st Century Legal Services, a telemarketing business that also operated under many other names. Over 4000 homeowners were deceived across the country, many of them also lost their homes to foreclosure according to Special Inspector General for the Troubled Asset Relief Program (SIGTARP), Christy Romero.

Christopher Paul George who partly owned 21st Century was convicted to one count of mail fraud affecting a financial institution, three counts of wire fraud, two counts of wire fraud affecting a financial institution, and one count of conspiracy to commit mail and wire fraud. Crystal Taiwana Buck who worked as a sales closer was convicted to three counts of mail fraud. A sales and marketing employee, Albert DiRoberto, was also found guilty of one count of mail fraud affecting a financial institution and two counts of wire fraud affecting a financial institution.

Distressed homeowners were defrauded by lying about 21st Century’s ability to negotiate home loan modifications according to Romero. The company falsely stated that it was a government-sponsored loan modification program and made numerous other “misrepresentations” to its victims. Homeowners were also told by the company that the payments made to the company were in fact going to their mortgages. The money homeowners believed were going to their mortgage payments were in fact pocketed by George and other co-defendants. Usually, the victims were told not to communicate with or make payments to their mortgage lenders.

Romero said, “The defendants’ sole goal was getting money from homeowners, and they did and said whatever it took to make that happen.” He further added, “SIGTARP and our law enforcement partners will put an end to schemes that prey on struggling homeowners by falsely claiming to be associated with TARP’s housing programs, and perpetrators of such schemes will be brought to justice for their crimes.”

Acting United States Attorney Stephanie Yonekura said, “Members of the conspiracy preyed upon homeowners who were in desperate financial straits by making promises they had no intention of keeping. The impact on victim homeowners across the country was severe, and it’s gratifying to see justice served in this case.”

All the three defendants will be sentenced in August. George faces up to 170 years in federal prison, Buck 60 and DiRoberto 90. This guilty verdict has brought the number of convictions in the case related to 21st Century to 11.

Two women in California have pleaded no contest to charges related to grand theft in a fraudulent mortgage loan scheme and obtaining money under false pretenses.

According to prosecutors, Penny O’Malley, a former loan officer with GMAC Mortgage allegedly devised a scheme that involved presenting false information on behalf of a loan applicant in order to make it seem like the applicant was qualified for the loan.

The loan application was made by Consuelo Herrera and her husband to finance the purchase of a property in Southeast Bakersfield. But the couple did not earn enough money to qualify them for the loan as Herrera was unemployed at the time.

O’Malley then convinced her step mother, Ellen Flores, to state in the loan application that Herrera worked in a liquor store that was owned by her stepmother’s husband. By giving this false information, the couple’s income was raised substantially, enabling them to qualify for the loan.

The loan which was granted in 2006 went into default in 2008 leading to losses of $158,572 for the U.S. Department of Housing and Development. But the fraud was not discovered until in 2010, when the HUD was carrying out mortgage fraud investigations.

The time taken for the fraud to be uncovered and the charges filed in court are now of major importance in this case, as defense attorneys are now arguing that the statute of limitations has expired. The alleged crimes are eight years old, and there is a three-year statute of limitations on the conspiracy charges, four years for the fraud charges.

Attorney H.A. Sala, representing Flores, has questioned what made prosecutors to take so so long in filing the charges.

But Prosecutor Gordon Isen maintains that the government only became aware of the alleged crimes in 2010, which is when the statute of limitations began counting.

“Our position is that, aside from the statute of limitations, Ellen Flores was not involved in fraudulent conduct, she did not knowingly submit fraudulent information to GMAC,” Sala said.

While the Herreras do not face any charges in the case, O’Malley and Flores who are currently free on bond now face a maximum of 270 days in jail, and 375 hours of community service, respectively. They also have to pay back $158,000.

Judge Thomas C. Clark has postponed hearing until August 25 to give the defense more time to prepare.

The United States has filed a suit against the estate and trusts of the late Layton P. Stuart, former owner and president of TARP recipient One Financial Corporation, and its wholly-owned subsidiaries, One Bank and Trust N.A., both based in Little Rock, AR.

According to a release by SIGTARP and the U.S. Department of Justice, the complaint alleges that Stuart made several misrepresentations in order to induce the U.S. Department of Treasury to make a $17.3 million investment in One Financial using TARP funds through the Treasury’s Capital Purchase Program (CPP).

“The complaint filed in federal court is the first time a TARP bank has been charged under the False Claims Act for making material misrepresentations to Treasury in order to obtain taxpayer TARP bailout funds,” said Christy Romero, Special Inspector General for TARP (SIGTARP).

In late 2008, Stuart, on behalf of One Financial, applied for TARP investment totaling $17.3 million. According to the complaint, Stuart is alleged to have knowingly made false statements about the financial condition of One Bank and what the TARP funds were intended to be used for. Among other details, Stuart failed to disclose that he, alongside other One Financial directors and bank executives, were involved in fraudulent activities which they planned to continue with the TARP funds.

As stated in the U.S. complaint, the fraudulent scheme involved diverting funds from One Bank for their personal use. Also, within 30 days of receiving the $17.3 million TARP funds, more than $2 million of the money was diverted for personal use. Stuart was fired from One Bank in September 2012.

“TARP was enacted in 2008 to restore liquidity and stability to the financial system of the United States by injecting needed capital into financial institutions,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “Obtaining TARP funds based on false representations to the government frustrates those goals and harms the American taxpayer.”

The U.S. complaint has alleged violations of the False Claims Act, civil conspiracy, fraud, payment under the mistake of fact, and unjust enrichment, and seeks treble damages and penalties.

U.S. District Judge Troy L. Nunley sentenced Tamara Tikal, of Rio Vista, California to three years and nine months in federal prison. She was convicted for conspiring to commit mail fraud in connection with a foreclosure rescue scam. The judge also ordered Tikal to pay $3,671,000 in restitution to victims of the offense. The announcement was made by Benjamin B. Wagner, U.S. Attorney for the Eastern District of California and Christy Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

Alan David Tikal, Tamara Tikal’s husband, was sentenced to 24 years in federal prison following a bench trial. Tamara Tikal and another co-defendant Ray Kornfeld pleaded guilty to the conspiracy in August 2014. Kornfeld was sentenced to five years in federal prison.

David Tikal was behind a business that was known as “KATN Trust” from January 2010 to August 2013, according the guilty plea of Tamara Tikal. KATN Trust targeted troubled homeowners who were finding it difficult to make their existing monthly mortgage payments. The victims, many of whom didn’t speak English, were promised that Alan David Tikal would reduce their outstanding mortgage debt by 75 percent. Alan David Tikal falsely claimed that he had access to enormous line of credit as a registered private banker. He also claimed that he could pay the mortgage debts of distressed homeowners in full.

Alan David Tikal told homeowners that their existing loans will be extinguished in return for various fees and payments and the homeowners would then owe new loans to Tikal in an amount equal to 25 percent of their original loan obligations. Many of these homeowners who relied upon the scheme stopped making payments on their mortgage loans and eventually lost their homes to foreclosure as a result.

Tamara Tikal served as a notary for various documents utilized in the scheme, paid salaries of employees and also maintained post-office boxes and bank accounts that received homeowner payments. Though she communicated with individual homeowners and assured them that the program was legitimate, she never made any payments on financial institutions on behalf of the homeowners. Over one thousand homeowners from California and a few other states were convinced to participate in the scheme. Many of them lost their homes. More than $5.8 million paid by the homeowners in fees and monthly payments were simply used by Tamara and her associates for their personal use, of which, $2.5 million was diverted to accounts controlled by Tikals.

Michael A. Marshall, 38, was recently sentenced to eight years in prison for his involvement in a bank fraud scheme related to a Charlotte car dealership and expensive luxury cars. According to the U.S. Attorney’s Office, Marshall was also ordered to pay more than $425,000 in restitution.

The prosecutors in the case said that Frederick Neal, his co-defendant and Marshall himself were engaged in fraudulent activities from August 2012 to February 2013. Marshall and Neal acquired at least seven luxury cars during this time. The cars the duo bought included a Maserati Grand Turismo in 2009, a Bentley in 2006, a Porsche Panamera in 2011 and Mercedes Benz SL550 in 2009.

The court documents show that Marshall would provide the money to make down payments for the cars at Planet Suzuki in Charlotte. They would then get loans in Neal’s name to pay rest of the money. While applying for the loans, they made false statements on the loan applications. The applications claimed that Neal earned more than $8,000 a month.

Some of the cars they bought were leased by the duo through a company owned by Marshall, Luxotic Rentals Inc. In case of the remaining cars, they created false lien release letters which claimed that the car had been paid off. The lean letters were then presented to the N.C. Division of Motor Vehicles and a request was made by Marshall and Neal for a new title.

Once they got the new title, the pair transferred the cars to Luxotic Rentals to be sold to third parties for cash. They carried out these deals pretending that the vehicles were free and clear of any liens.

Marshall was found guilty by a jury in May. He was accused of bank fraud, making false statements to financial institutions as well as money laundering. Neal pleaded guilty to conspiracy to commit offenses against the United States and was sentenced to 18 months in prison in February.

Linda Sue Newcomb, 64, was sentenced to 10 years in federal prison. She is the former president/CEO of the Lynrocten Federal Credit Union. Newcomb was also ordered to pay $11.7 million in restitution by Federal Judge Norman K. Moon in U.S. District Court in Lynchburg.

Due to the egregious nature of her crimes, federal prosecutors requested Judge Moon that Newcomb be sentenced to 12 years in prison. They argued in the court that, “Newcomb’s actions caused LFCU to be liquidated, tying up the monies of many of its members for various periods of time and a great deal of stress in dealing with the situation,” The prosecutors further said that, “Newcomb’s actions caused Northern Piedmont (Federal Credit Union) to be put on the financial brink. Because of Northern Piedmont’s losses at the hands of Newcomb, it had to terminate employees and sell a building just to remain viable.”

Newcomb was responsible for the loan participation agreements with the $18.7 million Northern Piedmont FCU in Warrenton, Va. that were negotiated and signed between October 2009 and October 2011. The court documents show that, Newcomb included false loans in these loan participation agreements including three loans put in the name of a deceased member.

Newcomb pretended in her regular correspondence with Northern Piedmont that the specific payments on the false loans were authentic and legitimate and the members were making payments. Federal prosecutors said that those payments were in fact being made from other false loans.

There were more than $1 million of fraudulent loans in the loan participation agreements at the time of the liquidation of Lynrocten.

Michael A. Whipple, 43, who never pocketed a dime from his wrongdoings but cost M&T Bank more than $5 million, pleaded guilty to bank fraud and will face a prison term up to 78 months. Whipple will also be required to pay $5.3 million in restitution to M&T.

According Whipple’s lawyer, the former vice president of M&T didn’t agree with many of the bank’s guidelines for lending money. He also strongly believed in the local companies he so eagerly helped.

Rodney O. Personius, Whipple’s defense lawyer said that Whipple believed he was doing the right thing. He further says, Whipple thought that he had a better way and it did work well for a while. Whipple was fired in 2013 after the FBI started an investigation into the allegations that he had used fraudulent means to approve more than $5 million of small business loans.

Whipple’s crime was described as “one of the largest fraud schemes in recent years” in the community by U.S. Attorney, William J. Hochul Jr. Whipple spent almost two decades at the bank and was recently promoted to vice president in its business banking section. Whipple oversaw a portfolio valued at $150 million in that position.

Whipple’s deep desire to avoid the kind of loan defaults that could have embarrassed him and cost him his job was behind these crimes according to the sources close to the case. In his attempts to hide his wrongdoings, Whipple forged signatures and diverted mail. His lawyer absolved M&T and said that they are strictly the victims.

M&T officials thanked the government for pursuing Whipple. Spokesperson of the bank C. Michael Zabel said, “Mick’s guilty plea acknowledges his illegal actions.” Whipple’s guilty plea ends an embarrassing chapter in the history of M&T, which is one of the largest commercial banks and the one of the region’s biggest employers.

The lack of oversight has resulted in the $6 million bad loans which might look small considering that the bank’s small-business portfolio is $5 billion strong, but he bank has moved quickly to correct the mistake. M&T officials said that no one apart from the bank has lost money due to Whipple’s criminal conduct and the bank is conducting an audit with special attention on preventing future problems.

About Rap Sheet

Why’d they do it?

SBFI offers Rap Sheet as a column to regularly report on the bad news about commercial lending, the news we wish we didn’t hear. This column provides stories about commercial lenders and some lending customers who’ve been charged or convicted of committing bank fraud, theft or other financial crimes.

Being in the financial services industry places all participants in direct contact with money and all the financial instruments, documents and processes with which it’s moved around. There’s also access to considerable confidential information about clients and their money. Sad to acknowledge, but some commercial lenders entrusted in these jobs violate the trust placed in them and the law.

When you accept a position in the financial services business, there’s more than the presumption of integrity-it’s the absolute number one job qualification. If lenders (or borrowers) intentionally cross that line of honor, for the rest of us there’s an important lesson that the essential trust needed to function can never relieve the constant responsibility of verification, supervision and risk management.

Rap Sheet stories offer more than just a drive-by car wreck view of lending - they’re examples of what can happen at your company if you don’t pay attention.

Small Business Finance Institute (SBFI) offers resources to commercial lenders to meet the challenges of client financing, industry changes and career advancement. Our mission is to foster a stronger, more profitable and responsive small business capital marketplace through better information, training, and mobility for individual commercial lenders.